- Premium Bonds have been a national institution since 1956
- Find out how Premium Bonds compare with savings accounts
- Learn more about the tax-free status of Premium Bonds
- Find out what happens when you've won a prize
Each month, every Premium Bond is entered into a prize draw, with winners being selected at random by National Savings & Investments (NS&I).
The investment limit on Premium Bonds will increase from £30,000 to £40,000 in June 2014. A further increase to £50,000 will take place in 2015/16. The minimum quantity of bonds you can currently purchase is £100 worth.
The number of £1m jackpot prizes will double from one to two in August 2014.
How likely am I to win a prize?
Winners are selected at random by ERNIE (Electronic Random Number Indicator Equipment) the NS&I computer.
Around a million bonds win their owners a prize (the odds of winning have been estimated as 26,000 to 1 for every £1 invested).
Go further: Different types of investment - a list of alternatives to Premium Bonds
Do I have to declare premium bond prizes on a tax return?
No. Any winnings are tax-free and are not counted as part of your taxable income, so you don't have to declare them.
Go further: Which? tax calculator - our tool will help you fill out your tax return
How much interest do Premium Bonds pay?
Premium Bonds don't pay any interest in the normal sense. However, the monthly prize 'pot' is generated from interest paid on the total amount invested in bonds. This is currently set at an annual rate of 1.3%. Individual bond holders may get more or less than this, depending on how frequently they win.
How can I find out if I've won a prize each month?
Prize winners are normally notified in writing (or in person if they have won £1m). You can check for recent and 'missed' prizes on the NS&I website by entering your bond holder’s number. If you have lost track of old bonds there is a free tracing service here, too.
Are old Premium Bonds ignored in the prize draw?
No. All bonds are entered in each month's draw, regardless of their date of issue (provided you have held them for a full calendar month following the month you bought them). A bond purchased in 1959 won the jackpot in July 2004.
It's true that more recent bonds win more often, but that is because there are more of these in circulation. Premium bond sales soared after the top prize was increased to £1m in 1994.
Go further: How to claim lost premium bonds - could you be sitting on a fortune?
Can I inherit Premium Bonds from my parents?
Premium Bonds can't be transferred, but their value does form part of the estate of the deceased. Executors can claim this from NS&I by completing a special claim form which can be found on the NS&I website or obtained by post from National Savings and Investments, Blackpool FY3 9YP.
How safe is my money if I invest it in Premium Bonds?
Your original investment is completely safe and you can get it back at any time. However, you may not win enough in prize money to protect your savings from inflation. Other investments, such as National Savings & Investments (NS&I) index-linked savings certificates, offer a more certain, if fairly low return – and they're unlikely to make you a millionaire, of course.
So should I put my savings into Premium Bonds in preference to other options?
Premium Bonds offer the thrill of a flutter without the risk of losing your original stake, but they do not offer a guaranteed return. Over the years your money could be eroded by inflation if you don't win regularly, so it makes sense not to put all your money into them.
Other investments, such as Best Rate cash Isas and Best Rate savings accounts are a better bet for long-term savings and investment, particularly for anyone relying on interest to contribute to their income.
Which Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Your home may be repossessed if you do not keep up repayments on your mortgage.